Analysis: Rising prices, harsh winter may dampen U.S. home sales in spring

Single family homes for sale are seen in San Marcos
Thomson Reuters
By Margaret Chadbourn

WASHINGTON (Reuters) - Emily Hanson would like to buy a house, but she worries that she and her husband may have to move across the country to achieve their goal.

In December, Emily, a 30-year-old student, and Nels Hanson, a 33-year-old software developer, began searching in Boston, where a shortage of homes for sale has driven up prices.

With a budget of $450,000, they have yet to find anything that interests them. Emily, who is studying to be a physician's assistant, said they are considering a move to Portland, Oregon, where housing is more affordable and jobs in tech and healthcare are plentiful.

The median sale price in the Boston area is $340,000, according to monthly updates on property values by Redfin, a national real estate brokerage. In Portland, it is $269,000.

"What's in our price range is not always updated or well taken care of - we mostly find fixer-uppers," Emily said. "It's basically a question of accepting a smaller home, or one that needs work, or do we uproot ourselves completely, which would entail my husband leaving a job that he loves."

The Hansons are far from the only would-be buyers who risk being crowded out by the run-up in home prices and mortgage rates over the past year. Home values nationwide were up 12 percent in January from the same month last year, according to data firm CoreLogic, while mortgage rates have jumped about a full percentage point.

"There is anxiety about prices across the board from buyers. We're also seeing sellers hold off and wait until later in the season before listing their properties," said Glenn Kelman, Redfin's chief executive officer. "It's starting to become a very crimped market."

Higher prices appear to be chasing some first-timers from the market. First-time buyers made up about 28 percent of purchases in February, down from 30 percent a year earlier, according to the National Association of Realtors.

With fewer entry-level buyers, the U.S. homeownership rate could slide further as more Americans opt to rent. According to the U.S. Census Bureau, 65.2 percent of Americans owned their homes in the fourth quarter of 2013, below a 2004 peak of 69.2 percent.

The increase in home values has also affected resales, which slipped 0.4 percent, to an annual rate of 4.6 million units in February. That was the lowest level since July 2012. Home resales, which peaked in July, have declined in six of the last seven months.

Meanwhile, the cash buyers and investors who helped drive the housing recovery in its early stages also appear to be bowing out. Investor purchases accounted for just 5.2 percent of all U.S. residential property sales in January, down from 8.2 percent a year earlier, according to RealtyTrac, a data firm. It was their lowest share since March 2012.

Economists are counting on an expansion of inventory and steady job and income gains to keep the housing recovery on the rails, but affordability problems threaten to undercut the normally busy spring home buying season.

While U.S. job creation broke out of a weather-induced stupor last month, wage gains are still muted and not nearly enough to compensate for recent increases in monthly mortgage payments. The average hourly pay for a nongovernment worker increased by 2.2 percent over the 12 months through February, according to the U.S. Labor Department, not far from the post-recession lows seen in 2010.

"The mortgage payment on a typical home is up 20 percent from last year, and incomes aren't rising much, which further erodes afford ability," said Jed Kolko, chief economist at real estate website Trulia.

WINTER'S TALE

A severe winter kept many Americans from listing their homes for sale. The number of previously owned homes available for sale at the end of February improved but stood at a relatively low 2 million, representing a 5.2 months' supply. Economists say a market needs about a six- to seven-month supply to have a healthy balance between buyers and sellers.

"We are battling heavy snow and just wondering when the winter weather will finally ease," said Judy Boyle, a real estate agent with RE/MAX Signature Properties in Northborough, Massachusetts. "Now we have pent-up demand from buyers, since the heavy snow is preventing sellers from listing properties."

Agents are counting on homeowners who held off in January and February to ready properties for sale once spring arrives.

Les Stierwalt and his wife, Sue, homeowners in Spokane, Washington, were encouraged by their real estate agent to wait out the second half of 2013 to ensure a quick closing this spring.

He is ready for retirement, with a new truck and RV in the driveway, and wants to shed the mortgage payment on the ranch-style property he and Sue purchased for about $200,000 in 2007, just as the market collapsed.

"We held off listing our home, since we weren't confident we could make a profit last year," said Stierwalt. "After waiting through the winter, the market is back up, so we're ready to sell and soon retire."

Warmer temperatures may boost sales as more homes like the Stierwalts' come on the market and as the jobs picture improves. But it may be too late to rescue what is shaping up to be a disappointing spring sales season.

"There's been a weather-induced pause in the housing market," said David Berson, chief economist at Nationwide Insurance. "The key will be a pickup in jobs after the weather becomes more seasonal to offset higher prices and mortgage rates, then home sales will rise this year."

New home construction projects have also slowed in recent months due to snowstorms in regions across the country. U.S. housing starts were little changed in February at a seasonally adjusted annual rate of 907,000 units, Commerce Department data showed. That followed January's revised 11.2 percent decline and suggested underlying weakness in housing activity apart from the drag of cold weather.